3 Ways To Protect Your Property From Income LOSS

If you’re thinking about buying a bigger place or purchasing your first condo, it’s natural to worry about what might happen if you get retrenched. The thought of not being able to pay your mortgage can be scary. But don’t worry, there are practical steps you can take to prepare for tough times. Here’s a simple guide to help you navigate these concerns and make sure you’re ready for any financial challenges.

1. Build a Safety Net

Don’t Over-Leverage
The most important thing is not to over-leverage. This means you shouldn’t take on more debt than you can handle. When buying a new property, make sure you have enough savings to cover at least 12 months of mortgage payments. This safety net can be a mix of cash and CPF (Central Provident Fund) savings.

Why 12 Months?
Having a 12-month safety net gives you time to find a new job or other income sources without the immediate fear of losing your home. For example, if your mortgage is $5,000 per month, you should have at least $60,000 saved up. This cushion can help you sleep better at night, knowing you have time to get back on your feet.

Dual-Income Households
If you and your partner both work, your safety net might stretch further. If only one of you loses your job, the other’s income can still cover the mortgage, giving you more time to recover. But it’s still smart to plan for the worst-case scenario where both of you might be out of work.

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2. Generate Rental Income

Rent Out Your Property
Another way to ease the financial burden is to rent out your whole property or just a room. This rental income can help cover your mortgage payments, providing you with financial relief.

Understand the Rental Market
Before you buy, research the rental market in the area. Properties in good locations or with attractive features are easier to rent out. Knowing the market helps you set a competitive rent that covers a significant part of your mortgage.

Room Rentals
If you prefer not to move out, consider renting a room. This way, you can stay in your home while earning some extra income. This option is great for first-time condo buyers who want to keep living in their new place.

3. Consider Selling Your Property

Last Resort: Sell the Property
If things get really tough and you can’t keep up with mortgage payments, selling the property might be the best option. This can help you avoid foreclosure and protect your financial health.

Seller’s Stamp Duty (SSD)
If you sell within the first three years of buying, you’ll need to pay the SSD. The rates are:

• 12% in the first year
• 8% in the second year
• 4% in the third year

After three years, there’s no SSD, so selling becomes less costly.

Timing the Sale
Try to hold onto your property for at least three years to avoid the SSD. But if you must sell earlier, paying the SSD could be worth it to avoid greater financial problems.

Summary of Strategies

Here’s a quick recap of what you can do if times are bad:

1. Build a Safety Net: Save enough to cover at least 12 months of mortgage payments. This gives you time to find a new job or income source.
2. Generate Rental Income: Rent out your whole property or a room to help cover mortgage payments. Understand the rental market to set competitive rates.
3. Consider Selling Your Property: If you can’t keep up with payments, selling might be the best option. Be aware of the SSD if you sell within the first three years.

Practical Application: My Personal Experience

Even seasoned property investors have these concerns. When I upgraded to a bigger property, I followed these same strategies. By building a safety net, looking into rental income, and understanding the implications of selling, I protected my investment and gave myself peace of mind.

How These Strategies Help My Clients

Many of my clients have found these strategies helpful too. By offering this advice, I’ve helped them feel more secure in their property purchases. Knowing they have a plan for tough times gives them the confidence to make their investment.

Real-Life Example

Let’s take John and Mary, a couple who recently bought their first condo. They were worried about what would happen if one of them lost their job. We worked together to build a 12-month safety net and explored the rental market. They found that renting out a room would cover a significant part of their mortgage. This plan gave them the confidence to move forward with their purchase.

Conclusion

Buying a property is a big step, and it’s natural to worry about what might happen if times get tough. But by building a safety net, considering rental income, and understanding the option of selling, you can protect yourself and your investment. These strategies provide a practical way to address concerns about retrenchment and give you the confidence to move forward with your property purchase. Remember, preparation is key to financial security and peace of mind.